Episode 6: Starbucks vs Dunkin' | Business Wars | Full Episode

Dunkin's Rebranding: A Shift from Donuts to Coffee

The Name Change Controversy

• In November 2017, Dunkin' Donuts announced a rebranding to simply "Dunkin'," sparking confusion and outrage among loyal customers who questioned the removal of "Donuts" from the name.

• Customers expressed their discontent on social media, with one tweet questioning, "If not donuts, what is being dunked?" highlighting the emotional connection many had with the brand's identity.

• CEO Nigel Travis explained that declining donut sales and a shift towards health-consciousness prompted this strategic pivot to focus more on coffee, which has higher profit margins.

• The rebranding aims to position Dunkin' as a leading on-the-go coffee brand rather than just an alternative to Starbucks, emphasizing improved coffee quality without raising prices.

• This ambitious strategy raises questions about customer acceptance of Dunkin's new direction after decades of being known primarily for its donuts.

Competitive Landscape in Coffee Industry

• The episode discusses how both Dunkin' and Starbucks are adapting to changing consumer preferences amidst economic growth and competition in the coffee market.

• Cold drinks have surged in popularity; iced coffee consumption increased by 75% over ten years, prompting Starbucks to innovate with cold brew options.

• Starbucks developed a cold brew method that required extensive testing before launching it successfully in July 2015 at a premium price point compared to iced coffee.

• As cold brew gained traction, Starbucks introduced nitro cold brew while Dunkin' responded with its own version at nearly half the cost, aiming for market share among price-sensitive consumers.

• By 2016, Dunkin' expanded rapidly in New York City and sought innovative frozen drink options like Frozen Dunkin’ Coffee to enhance profit margins.

Strategic Risks and Market Response

• In 2017, Dunkin' faced backlash when retiring its Coolatta drink but continued innovating with new flavors aimed at attracting customers looking for alternatives to high-calorie beverages.

• Despite initial resistance from fans regarding product changes like the Coolatta retirement, Dunkin’ launched various flavored iced coffees that resonated well with consumers seeking indulgent options.

• By late 2017, these strategies paid off as shares of Dunkin Brands rose significantly while Starbucks struggled with stagnant sales amid shifting consumer preferences.

Starbucks: A Case Study in Crisis Management

The Opening Ceremony and Initial Remarks

• The event begins with a flag presentation, followed by Starbucks employees singing the national anthem. Howard Schultz, the CEO, takes the stage alongside Kevin Johnson, who is set to succeed him.

• Schultz addresses critics of Starbucks, emphasizing that they have always taken a long-term view and will not succumb to short-term pressures.

Customer Experience Challenges

• At a Washington DC Starbucks at 8:00 AM, baristas struggle to keep up with orders due to the mobile app's popularity, which allows customers to pre-order.

• Frustrated customers express their dissatisfaction as they wait for their orders despite using the app designed to expedite service.

Incident Leading to Public Outrage

• On April 14th, 2018, two African-American men, Dante Robinson and Rashon Nelson, are arrested at a Philadelphia Starbucks while waiting for a business meeting.

• After being denied access to the restroom without making a purchase, they are confronted by the store manager who calls 911 when they refuse to leave.

Arrest and Immediate Reactions

• The police arrive and arrest Robinson and Nelson; other customers react with shock as one records the incident on their phone.

• Following an eight-hour detention without charges pressed by Starbucks, public outrage grows rapidly online.

Social Media Backlash and Corporate Response

• A video of the arrest goes viral on Twitter with millions of views; public sentiment highlights racial discrimination issues within Starbucks' policies.

• In response to backlash from various stakeholders including Philadelphia's mayor, Starbucks tweets an apology that many perceive as insufficient.

Company Actions Post-Incident

• As protests escalate outside stores and boycotts gain traction, Schultz issues a formal statement about improving customer access while settling with Robinson and Nelson for an undisclosed amount plus educational opportunities.

Racial Bias Training Initiative

• To address systemic issues within its operations following the incident, Starbucks closes 8,000 stores for racial bias training sessions costing millions in sales.

Competitors Seize Opportunity

• Dunkin' Donuts positions itself against Starbucks by stating it will avoid political discussions in its branding strategy during industry meetings.

Future Competition Dynamics

Dunkin' and Starbucks: A Battle for Coffee Supremacy

Dunkin's Transformation

• Dunkin' is undergoing a significant transformation with a $100 million investment aimed at attracting new customers through a modernized store concept.

• The new store design features open spaces, natural light, and an inviting atmosphere, moving away from traditional layouts to enhance customer experience.

• Customers can now enjoy a variety of cold beverages including iced coffee flavors and nitro cold brew, showcasing the brand's focus on innovation.

• Staff uniforms feature motivational slogans like "fueled by positive energy," reflecting the brand's commitment to creating an upbeat environment.

• The company plans to test 50 of these revamped stores in 2018 as part of its strategy to appeal to younger consumers seeking quality without high prices.

Starbucks' High-End Strategy

• In September 2018, Starbucks opens a luxurious reserve roastery in Milan, Italy, aiming to capture the attention of discerning coffee lovers.

• This location transforms a historic post office into an extravagant coffee emporium featuring marble counters and local artisan mosaics.

• With over 115 drink options including unique cocktails, this store offers an immersive experience that goes beyond typical coffee shops.

• Customers express amazement at the innovative offerings such as made-to-order affogato using liquid nitrogen, enhancing the overall experience.

• Howard Schultz views this venture as fulfilling his dream of creating a premium coffee destination that resonates with Italian espresso culture.

Political Aspirations and Challenges

• In January 2019, Schultz announces his intention to run for president as a centrist independent candidate amid concerns about potential impacts on Democratic votes.

• Analysts highlight risks associated with his candidacy potentially alienating both liberal customers who favor Starbucks and conservative patrons less likely to visit.

• After health issues force him off the campaign trail due to back surgeries, Schultz ultimately withdraws from the race in early 2020.

Competitive Landscape: Breakfast Wars

• Dunkin's new CEO Dave Hoffman emphasizes rebranding efforts towards becoming a higher-end coffee destination with significant investments in brewing equipment.

The Coffee Market Landscape

Revenue and Competition

• Starbucks generated over $26 billion in revenue, significantly outpacing Dunkin's $1.4 billion, yet Dunkin maintains a loyal customer base.

• Competitors like McDonald's, Burger King, and 7-Eleven are increasingly entering the coffee market with superior offerings.

• Artisanal coffees from brands such as Blue Bottle and Stumptown are becoming popular in supermarkets and local shops.

Innovation Amidst Challenges

• The coffee industry is experiencing high-velocity innovation with new products like Odin coconut milk lattes and diverse flavors emerging.

• However, marketing efforts faced setbacks due to the US-China trade war impacting consumer sentiment towards American brands.

Environmental Threats to Coffee Production

• A significant challenge for both Starbucks and Dunkin is climate change, which threatens coffee bean production through droughts and deforestation.

• Projections indicate that by 2050, half of the land used for cultivating high-quality coffee may become unviable.